THE governor of the Reserve Bank has defended the level of Australia's house prices, and says housing affordability is the best it has been in a decade. Glenn Stevens also dismissed talk of a housing bubble poised to pop. He said house prices were not unreasonably high.

It has to be said that the housing market bubble, if that's what it is, seems to be taking quite a long time to pop - if that's what it is going to do. The ingredients we would look for as signalling an imminent crash seem, if anything, less in evidence now than five years ago.

"Australian dwelling prices on a national basis have in fact declined and are now about where they were in 2002. That is, housing has become more affordable," he said. "Four or five years ago we supposedly had a housing affordability 'crisis'. Now it seems that the problem some people fear is that of housing becoming even more affordable."

Speaking at a business lunch in Sydney, Mr Stevens said he was unconvinced house prices were overvalued, even if the ratio of home prices to income, on a national basis, was higher in Australia than it was 15 or 20 years ago.

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He said when comparing Australian house prices to income levels with those in comparable countries, Australia appeared to be in the middle of the pack.

"It has to be said that the housing market bubble, if that's what it is, seems to be taking quite a long time to pop - if that's what it is going to do," he said. "The ingredients we would look for as signalling an imminent crash seem, if anything, less in evidence now than five years ago."

Critics have warned for years that the Australian housing market is in a bubble, much like the credit bubbles seen in Europe and the US before the global financial crisis.

Adrian Blundell-Wignall, an official from the Organisation for Economic Co-Operation and Development, and formerly with the Reserve Bank, said earlier this month he feared for Australia's housing market if global growth seriously faltered.

"The world is so globalised and interconnected that if it goes down, then things will get much worse for Australia … [and] the biggest problem in Australia, that worries me personally … is the Australian property market,'' Dr Blundell-Wignall said.

''You'll never get an auction price collapse but nevertheless you can think Australian house prices will be going sideways in nominal terms or maybe down in nominal terms, and in real terms they'll be going down quite a bit over some years. You know, if unemployment rises, then that will accelerate.''

But a Reserve Bank assistant governor, Guy Debelle, told a mortgage conference in Adelaide last month that the only signs of over-supply in Australia's housing market were in south-east Queensland, and that nationally there were not enough houses to go around.

''Nationally the level of housing construction is about where it was 10 years ago, but the population is 15 per cent higher,'' he said.

At yesterday's business lunch, the chief currency strategist with the Commonwealth Bank, Richard Grace, asked Mr Stevens if he was concerned that Australia's exports were too heavily weighted towards China, and too heavily weighted towards iron ore, which makes up about 60 per cent of Australia's exports to the world's second-biggest economy.

Mr Stevens said he was unconcerned about that, and that Australia's exchange rate would help to soften any blow from a volatile swing in Chinese demand for iron ore.

He also said fiscal policy could be used better to help to stabilise Australia's economy in times of volatility.

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292 comments so far

Hmmmm, OK. I wonder what his salary level is?

Commenter

clickaus

Location

Sydney

Date and time

July 25, 2012, 10:40AM

Hopefully Stevens could afford my place when I try to flog it in a couple of years.

Commenter

alto

Location

Date and time

July 25, 2012, 10:51AM

If you're living beyond your means, go somewhere else...

Commenter

Savvy

Location

Sydney CBD

Date and time

July 25, 2012, 11:13AM

Exactly! He is obviously out of touch with reality and probably earns more than 10-times that of the average aussie Joe Blow. So of course he thinks the price of houses in sydney are affordable.

Commenter

Xasper

Location

Sydney

Date and time

July 25, 2012, 11:14AM

@ not-so-savvy

It is not that simple. Sydney needs teachers, nurses, ambulance officers, police, firemen, and public servants, drivers, retail workers. These are our lifeblood. If they cannot afford Sydney housing, should they all move somewhere else? And for these people, Sydney houses are 6-8 times their incomes.

The spruikers tell us otherwise, but the outskirts of Sydney are $550 - $750. The central coast is $300 - $600. So tell me again how a teacher with kids can afford this? Should this valuable group of workers be forced to live in a bedsit because greedy speculators have driven up prices?

Commenter

TB

Location

Sydney

Date and time

July 25, 2012, 11:30AM

The truer comparison is average salary to average mortgage repayment, as this accounts for the difference in interest rates. If a house price:salary ratio is lower but the interest rates are much higher then the house can be more unaffordable. Based on this affordability hasn't changed that much. However expectations have changed. Buyers need to get more realistic with their expectations. If you want a big home on a big block, you're going to have to buy further away. If you want to be closer to the city you're going to have to start with something smaller and/or older and in need of work. Don't be afraid to do the hard yards. You can bet your parent's did. I started off with a 2-bedroom flat in 97, then upgraded to a 3-bedroom townhouse in 99, and finally bought a 3-bedroom house in desperate need of work in 2004, and spent almost every wekeend over the next 5 years extending and renovating it

Commenter

wee

Location

perth

Date and time

July 25, 2012, 12:00PM

He can afford to make those comments on his 6 figure salary plus all the perks.

Commenter

Tony of Brisbane

Location

Date and time

July 25, 2012, 12:12PM

I am fortunate to have a good salary compered to most, however I have found it hard to get into property conceding to rent and battling annual increases at the whim of the estate agent. It really is not a matter of living beyond your means either.

Commenter

clickaus

Location

Sydney

Date and time

July 25, 2012, 12:13PM

@ TB

I guess the problem is that 02 prices are still 2 to 3 times the 98/99 prices. Teachers get paid pretty well and have a range of options available to them. I'd like to see a real average of income excluding anybody earning over $1 million a year. I know the vast majority of people would be lucky to be making $50,000 a year and that includes nurses, firies, and teachers.

Commenter

John Michaels

Location

Offshore

Date and time

July 25, 2012, 12:19PM

@xasper

If you are going to be the RBA boss one day will get a similar salary.

Now that should be your goal. So start working towards it.

I am not confident that a bloke on a cleaner's salary would be be able to handle his job.

Learn how to safe and you will be able to afford it.

Get a job in the Pilbara and safe your money over say two years and you will have a deposit for a house in Sydney.